Fiduciary Duty: 3 Reasons to Include a Life Settlement Needs Analysis in your Advisory Services Menu
June 12, 2017
For financial advisors who offer guidance on 401(k) plan assets, individual retirement accounts or other qualified monies saved for retirement, phrases such as “fiduciary duty” and “impartial conduct standards” took on new meaning starting June 9, 2017. That’s when the first phase of the highly-publicized DOL Fiduciary Rule went into effect requiring advisors to recommend solutions that are in the “best interest of the client.”
With the heightened focus on “fiduciary duty” as a backdrop, we have summarized three reasons why financial and insurance advisors should include a “Life Settlement Needs Analysis” in their advisory services menu for senior clients over the age of 65.
1. Public Awareness of “Fiduciary Duty” Presents Marketing Opportunity for Advisors
News coverage of the DOL Fiduciary Rule has created unprecedented public awareness about the importance of client-centered fiduciary advice. When consumers have top-of-mind awareness regarding the fiduciary standard, they will be more selective in vetting the financial services firms with whom they choose to invest and to manage their retirement assets.
In order to stay competitive and win a client’s business, advisors will be expected to provide fiduciary-level services to the client on all financial matters, even for advisory services that are not included within the scope of the new DOL rule. This presents an opportunity for smart advisors to deploy the spirit of the fiduciary standard to earn the trust of clients and to differentiate themselves from the competition. (e.g. turning lemons into lemonade.)
One way advisors can demonstrate that they have the best interests of the client at heart is to conduct annual reviews of their life insurance assets. Senior clients with underperforming life insurance policies or seniors who are burdened with expensive premiums for policies they do not need or want, will be relying on their financial or insurance advisors to recommend the most favorable options. In many instances, a life settlement is far more advantageous than allowing a policy to lapse or accepting a small cash surrender payment.
2. Broader Consumer Awareness of Life Settlements on the Rise
Consumer awareness and confidence in the secondary market for life insurance has surged over the past year. According to recent industry data, the number of life insurance policies sold in the secondary market during 2016 increased by 47% over the previous year.
What’s behind the trend? As aging baby boomers retire, many are looking for exit strategies from policies no longer needed for income protection for dependent family members. Retiring business executives who own key man policies are exploring options to maximize the cash value for an asset that is no longer relevant.
Many elderly seniors are turning to the life settlement marketplace to sell their policies in order to finance their medical or long term care expenses. Others use the proceeds from life settlements to enhance their retirement or make gifts to family members or charities.
Also contributing to the trend are recent television ads by life settlement companies that have helped educate senior consumers about the existence of the secondary market for unwanted policies. Many seniors who have viewed these ads often call their financial advisors to verify that the product is legitimate. When such calls do come in, advisors should be fully knowledgeable about the benefits of a life settlement and demonstrate the spirit of the fiduciary rule regarding solutions that are in the “best interest of the client.”
3. Regulatory Environment Tilting in the Direction of Life Settlements
Life settlement transactions are currently regulated in 42 states and the territory of Puerto Rico, affording approximately 90% of the United States population protection under comprehensive life settlement laws and regulations.
In 2010, the National Conference of Insurance Legislators (NCOIL) unanimously passed the Life Insurance Consumer Disclosure Model Act. This legislation entitles consumers who own a life insurance policy to as much information as possible about their rights as owners of life insurance policies. Specifically, the legislation mandates that life insurance carriers provide a notice of alternatives to insureds who are age 60 or older — or are known to be terminally or chronically ill — if the policy owner faces certain changes in their policy, including if a policy is about to lapse or surrender. Additionally, this legislation prohibits life insurance carriers from terminating (or otherwise deterring or penalizing) an agent for apprising a policy owner of their legal rights available under their life insurance policy.
Since the passage of NCOIL’s Model, numerous states have explored the issue and eight states have passed some form of consumer disclosure, including California, Georgia, Kentucky, Maine, New Hampshire, Oregon, Washington, and Wisconsin.
On another note, many states, including the State of Florida, have enacted statutes (based on the NAIC Viatical Settlements Model Act), that indicate life settlement brokers owe a “fiduciary duty” to the policy seller when brokering the transaction. That’s why advisors and their clients who have heard about life settlements from TV ads should conduct due diligence on those companies to determine if they are operating as a “broker” (with a fiduciary duty to the seller), or as a “provider” who purchases the policy but who does not have a fiduciary duty as it relates to generating the highest possible cash offer for the seller’s policy.
In conclusion, consumer expectations regarding “fiduciary duty” will reshape the way advisors do business in the future. Advisors can engender client trust by conducting a Life Settlement Needs Analysis for senior clients who may no longer need life insurance coverage. And when a life settlement is the preferred solution for an unwanted policy on the verge of lapse or surrender, advisors and their clients should engage a life settlement broker who, by law, is considered to have a “fiduciary duty” to generate the highest possible offer for the policy seller.
As a life settlement broker licensed in the state of Florida, Asset Life Settlements is committed to industry best practices and to handling each transaction in accordance with our fiduciary duty to the policy seller. Please contact us at 855-768-9085 if you have questions or would like to discuss a specific case. We will be happy to provide a no-obligation price quote for your client’s policy.